Cromwell European REIT (CEREIT), on July 24, announced that its portfolio valuation for its 111 properties stood at EUR2.29 billion ($3.40 billion) for the six months to June 30. This is a decline of 1.6% compared to the EUR2.33 billion in valuation as at Dec 31, 2022.
The valuations as at June 30 took into account the benefit of valuation increases on properties under development in Italy and the Czech Republic and prior to capital expenditure.
According to the REIT manager, the impact from the weakening economic environment, high inflation and rising interest rates were mitigated by several factors including the REIT’s assets being in “good micro locations”. These assets have experienced tenant demand, market rent growth and low market vacancies with little new competitive supply, says the REIT manager.
In addition, most of the REIT’s leases have annual inflation indexation clauses which contributes to sustained strong rent reversion.
In its July 24 statement, the REIT manager also announced that it has achieved its aim of being majority weighted to the logistics / light industrials sector, which has continued to contribute positively to its net asset value (NAV).
The REIT’s logistics / light industrials portfolio recorded a 0.8% valuation gain to EUR1.17 billion in June as compared to December on a like-for-like basis, while the REIT’s office portfolio recorded a valuation decline of 3.9% to EUR1.08 billion. Its “others” portfolio recorded a valuation decline of 2.9% to EUR46.7 million.
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In terms of countries, the UK, Slovakia, Denmark, the Czech Republic and France, which have a predominantly logistics / light industrials portfolio, recorded valuation increases. At the same time, the REIT saw valuation declines in the Netherlands, Italy, Germany, Finland and Poland. Except Germany, which saw a drop in its low-yielding logistics / light industrials portfolio due to a weaker economy and slower leasing pace, the rest of the countries have predominantly office portfolios.
According to the REIT manager, tenant demand for quality environmental, social and governance (ESG)-certified office spaces is now a key factor in terms of higher occupancy and higher prime office rents in European cities, especially in good locations.
It was this trend towards such offices, which are modern, energy-efficient and have quality amenities, as well as the relatively higher physical office occupancy in European cities, that helped temper the decline in the REIT’s office portfolio valuation.
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Overall, the REIT has recorded 74 basis points (bps) higher property capitalisation rates over the past 12 months since the European Central Bank commenced its rate increase cycle and the global economy has slowed.
However, CEREIT’s portfolio valuation has only reduced by 3.2% over the past 12 months, supported by strong performance from active leasing / renewals of over 30% of the portfolio in the last 18 months, high annual inflation indexation growth and continued positive rent reversions.
“It is pleasing to note that CEREIT’s June 2023 portfolio valuations only declined by a modest 1.6% as compared to December 2022 levels. Taking into account the recent sale of Piazza Affari, Italy, we now expect to report CEREIT’s net gearing at around 38.2% as at June 30, well inside loan covenants. NAV per unit is expected to be EUR2.30, which is 32% above CEREIT’s most recent EUR1.57 unit price,” says Simon Garing, CEO of the manager.
Units in CEREIT closed 1 Euro cent lower or 0.63% down at EUR1.57 on July 21.
